INDIGOLEARN

Advanced Accounting
ESOPs

P5 – ESOPs INDIGOLEARN PAGE 1

Illustration 1

A Company has its share capital divided into shares of Rs.10 each. On 1st April, 20X1
it granted 10,000 employees’ stock options at Rs 40, when the market price was
Rs.130. The options were to be exercised between 15th March, 20X2 and 31st March,
20X2. The employees exercised their options for 9,500 shares only; the remaining
options lapsed. The company closes its books on 31st March every year.

Show Journal Entries

Illustration 2

ABC Ltd. grants 1,000 employees stock options on 1.4.20X0 at Rs 40, when the
market price is Rs. 160. The vesting period is 21⁄2 years and the maximum exercise
period is one year .300 unvested options lapse on 1.5.20X2. 600 options are exercised
on 30.6.20X3. 100 vested options lapse at the end of the exercise period.

Show Journal Entries.

Illustration 3

Arihant Limited has its share capital divided into equity shares of Rs.10 each. On 1-
10-20X1, it granted 20,000 employees’ stock options at Rs.50 per share, when the
market price was Rs. 120 per share. The options were to be exercised between 10th
December, 20X1 and 31st March, 20X2. The employees exercised their options for
16,000 shares only and the remaining options lapsed. The company closes its books
on 31st March every year. Show Journal Entries (with narration) as would appear in
the books of the company upto 31st March, 20X2.

Illustration 4

Ajanta grants 120 share options to each of its 460 employees. Each grant is
conditional on the employee working for Ajanta over the next three years. Ajanta
has estimated that the fair value of each share option is Rs.12. Ajanta estimates
that 25% of employees will leave during the three-year period and so forfeit their
rights to the share options. Everything turns out exactly as expected.

Required:

Calculate the amounts to be recognized as expense during the vesting period

Illustration 5

P Ltd. granted option for 8,000 equity shares of nominal value of Rs.10 on 1st
October, 20X0 at Rs. 80 when the market price was Rs.170.The vesting period is 4
1⁄2 years, 4,000 unvested options lapsed on 1st December, 20X2, 3,000 options were
exercised on 30th September, 20X5 and 1,000 vested options lapsed at the end of
the exercise period. Pass Journal Entries for above transactions.

P5 – ESOPs INDIGOLEARN PAGE 2

Illustration 6

Choice Ltd. grants 100 stock options to each of its 1,000 employees on 1.4.20X1 for
Rs.20, depending upon the employees at the time of vesting of options. Options
would be exercisable within a year it is vested. The market price of the share is
Rs.50 each.

These options will vest at the end of year 1 if the earning of Choice Ltd. is 16%, or
it will vest at the end of the year 2 if the average earning of two years is 13%, or
lastly it will vest at the end of the third year if the average earning of 3 years will
be 10%. 5,000 unvested options lapsed on 31.3.20X2. 4,000 unvested options lapsed
on 31.3.20X3 and finally 3,500 unvested options lapsed on 31.3.20X4.

Following is the earning of Choice Ltd:

Year Ended on Earning (in %)

31.3.20X2 14%

31.3.20X3 10%

31.3.20X4 7%

850 employees exercised their vested options within a year and remaining options
were unexercised at the end of the contractual life. Pass Journal entries for the
above.

P5 – ESOPs INDIGOLEARN PAGE 3